Mergers and Acquisitions (M&A))
In the event of a merger being considered businesses must conduct analysis to determine whether the merger is financially viable. To assess the viability of a merger, companies must analyze the previous financial data and then predict the future performance of the targeted businesses. Mergers can dramatically alter a company’s financial standing, market position, and operational structure. They can also pose serious risks and create challenges in the areas of integration, cultural alignment and customer retention.
Operational Evaluation
Business analysts conduct extensive research and evaluation of the operations of a target to provide acquirers with complete information about the company’s strengths, weaknesses, and opportunities. They can identify areas of improvement and suggest ways to increase productivity and increase efficiency.
Analysis of valuation
The most crucial aspect of an M&A deal is determining what the target business is worth to the acquiring company. This is usually done by comparing comparable trading transactions, precedent transactions and performing the discounted-cash flow analysis. When conducting M&A analysis, it is important to use different valuation techniques because each has its own unique perspective.
Analysis of accretion/dilution
The accretion/dilution method is a crucial tool to assess the impact of an M&A deal. It is a calculation that shows how the acquisition will impact the buyer’s proforma earnings per share (EPS). An increase in earnings per share (EPS) is considered accretive while a decrease is deemed dilutive. The accretion/dilution technique is employed to ensure the price paid for a target is fair in relation to its intrinsic value.
